U.S. Air Force looks at ending ULA’s $800 million subsidy

WASHINGTON – The U.S. Air Force is considering the early termination of United Launch Alliance’s $800-million-a-year launch capability contract after the company failed to bid on the service’s first competitive launch contract in a decade.

Air Force Secretary Deborah Lee James, testifying Wednesday at a Senate Armed Services Committee hearing on military space launch, said she has directed staff to study the implications of ending the contract early.

The hearing came with a bevy of unwanted news for United Launch Alliance.

Sen. John McCain (R-Ariz.), the committee’s chairman, said he would introduce legislation Thursday to reinstate a ban on the U.S. military’s use of Russian rocket engines, a move that effectively would limit ULA to nine RD-180 engines for upcoming competitions for Air Force launch contracts. The Boeing-Lockheed Martin joint venture’s Atlas 5 rocket, which launches the majority of national security satellites, is powered by a single RD-180. The ban would not curtail NASA’s use of the workhorse rocket.

Ending the launch capability contract — which critics, including rival SpaceX have branded a subsidy — would have the most immediate impact to the Boeing-Lockheed joint venture.

The launch capability contract provides funding to ULA on an annual basis to cover services not necessarily associated with a given launch. McCain, during Wednesday’s hearing, called the contract “$800 million to do nothing.”

In her testimony, James said the contract currently is scheduled to end in 2019 after ULA carries out the final launch covered under an $11 billion sole-source block buy agreement with the Air Force. That deal, which predates the 2006 creation of ULA, covers the production of 36 Atlas 5 and Delta 4 rocket cores plus launch costs for a total of 78 missions.

James did not say how quickly the Air Force could end the contract or, for that matter, how soon it expects to complete its evaluation of an early termination.

McCain and other senators at the hearing expressed frustration with ULA sitting out November’s competition for the 2018 launch of an Air Force GPS 3 satellite. The contract is expected to go to SpaceX since ULA declined to bid citing, among other reasons, the possibility it would not have an Atlas 5 rocket available for the mission because the RD-180 ban had not yet been repealed.

Frank Kendall, the Pentagon’s acquisition czar, said defense officials share McCain’s frustration. “We’re all upset they did not bid,” he said.

McCain pressed the issue to no avail, asking “What’s the penalty?” for receiving the launch capability funding and then not bidding on Air Force contracts.

Reinstating the RD-180 Ban

Following Russia’s 2014 incursion into neighoring Ukraine, Congress moved to end the U.S. dependence on Russian rocket engines for national security launches by adding a provision to the National Defense Authorization Act of 2015 phasing out the Air Force’s use of the RD-180.

In December, Congress lifted the ban when it enacted a 2016 omnibus appropriations bill Sen. Richard Shelby (R-Ala.) successfully amended to provide the RD-180 relief sought by ULA, which builds its rockets in Alabama. The relief is only temporary, however, since it only remains in effect until Congress passes new appropriations for 2017.

Still, Shelby’s move infuriated McCain, who accused the senior appropriator of usurping the work of the House and Senate authorization committees.

Now McCain — joined by House Majority Rep. Kevin McCarthy, whose Mojave, California congressional district is an epicenter of commercial space activity — is preparing a legislative push to repeal the 2016 omnibus bill’s RD-180 language. If McCain and McCarthy prevail, the 2016 National Defense Authorization Act, which gives ULA access to just nine RD-180 engines for Air Force launches not already under contract, would again be the law of the land.

“This legislation is vital to ensuring the United States does not depend on Vladimir Putin’s regime for assured access to space,” McCain said in a statement. During the hearing, he said the bill marked “the first of many actions” to end reliance on Russian engines.

ULA spokeswoman Jessica Rye said in an email to SpaceNews that it is “critical that ULA is able to continue to provide the reliable, affordable launch services our customers depend on while the new, American engine is being developed.” ULA is working with Blue Origin on the methane-fueled BE-4 engine that would power the main stage of Vulcan, ULA’s proposed Atlas 5 successor.

Shelby, meanwhile, issued a press release Wednesday saying banning the RD-180 — which he says accounted for just $88 million of the $27 billion in Russian goods the U.S. imported in 2013 — “is clearly more about squelching true competition in the military launch sector than actually banning the use of Russian products in America.”

Meanwhile, James said during Wednesday’s hearing that the Air Force is looking for confirmation that buying RD-180 engines does not constitute a violation of U.S. sanctions on Russia. Energomash, the Moscow-based company that builds the RD-180 engines, reorganized in 2015, making the Russian government its largest shareholder. Dmitry Rogozin, a deputy Russian prime minister who oversees the country’s space sector, has been on U.S. sanction lists since March 2014.

ULA buys the RD-180 from RD-Amross, an Energomash-Pratt & Whitney Rocketdyne joint venture based in Florida.